COMMISSIONER OF INCOME TAX Vs. VELANKANI INFORMATION SYSTEMS (P.)LTD.

JUDGEMENT

(1.) All these appeals are taken up for consideration together as the common question of law is involved and therefore, they are disposed of by this common order. However, for proper appreciation of the question of law involved, the facts in ITA No. 374/2011 are set out. The assessee M/s. Golf Link Software Park Pvt. Ltd., is a Real Estate Developer. It is in the business of providing comprehensive facilities to I.T. Industry. Such facilities include provision for specially furnished buildings, special electrical connections and special arrangement for antennae and dish, good net connectivity for transmission of data and special furniture. Provision for such facilities also includes letting out specialized buildings and office premises that are built to cater to the special requirements of the I.T. industry.

(2.) The assessee-company filed its return of income for assessment year 2005-06 on 31.10.2005 declaring a total income of Rs. NIL and paid taxes under Section 115JB of the Income-tax Act, 1961 (for short, hereinafter referred to as 'the Act'). The same was processed under Section 143(1) of the Act on 28.08.2006. The case was selected for scrutiny by issue of notice under Section 143(2) dated 25.07.2006, which was duly served on the assessee Company. The assessee in response to the notice issued appeared on 13.12.2007 and 14.12.2007 and filed written submissions. The assessee claimed that they are in the business of providing comprehensive facilities to IT Industry. Such facilities include provision for specially furnished buildings, special electrical connections, and special arrangement for antennae and dish, good net connectivity for transmission of data and special furniture. All these facilities include letting out specialized buildings and office premises that are built to cater to the special requirements of the I.T. Industry.

(3.) The submissions of the assessee were not accepted by the Assessing Authority. According to the assessing authority, the lease agreements clearly reveal that the main activity of the company is renting out property. Majority of the investments has gone into construction of buildings. The assessee is neither manufacturing, exchanging nor selling any goods or services. Mere letting out the properties with facilities like furniture, air conditioners, dish antennae, etc. does not change the nature of the receipt. The business activities arc usually concerned with transfer and exchange of goods and services. The primary motive behind such activity is profit making. Business may be defined as an activity which is continuously carried on for economic gain with the associated risk of producing and selling of goods and services. The factual position regarding the lease rentals as seen from copies of the agreements shows lease rentals were charged for let out of the buildings and a separate agreement was entered into in respect of the services and amenities provided. The Act provides the heads of income under the provisions of Section 14, which are mutually exclusive and determine the heads under which the income is to be assessed. The objects in the memorandum of the company cannot determine the heads of income under which the income is to be taxed. The lease rental income from any property of which an assessee is a beneficial owner shall be liable to be taxed as 'Income from House property' irrespective of the nature of the asset being held as fixed asset or investment or closing stock. In case of a property let out along with furniture, fixtures, plant and machinery etc., then the question as to whether it is let out inseparably shall determine the heads of income. The inseparable letting-out does not depend on rent fixed on each asset but, where one lease shall be acceptable without the other. In case one is acceptable without the other, then the income from letting-out of building shall amount to 'Income from house property' and the income from letting out of the amenities shall constitute 'income from other sources'. In case one is inseparable from the other, then the income so derived shall constitute income from other sources. In the case of letting out being on a day to day basis, then it shall be construed to be a licence to use the same and held to be 'income from business'. In the case of letting out, being on a month to month basis or on an annual basis, the same shall not constitute 'income from business'. In the case of rental income from the building clearly falling under the head 'Income from House Property', the building shall not be entitled for depreciation. In the light of the aforesaid particulars, the Assessing Authority held that the assessee has let out the buildings and also provides several amenities. The provision of amenities is governed by a separate agreement or separate rates in a common agreement at which such services are charged. Accordingly, the consideration in respect of these two transactions arc distinct and need to be considered as such. Apparently, the letting out of space is independent of the oilier. The lessee may or may not opt for these benefits. Therefore, the income arising from the letting out of buildings or lands appurtenant thereto clearly constitutes 'income from House Property'. The income for providing services will constitute 'income from other sources'. Therefore, the Assessing Authority proceeded to assess the income from the buildings under the head of 'income from house property' and the income from furniture, fittings and other accessories and services rendered, under the heading 'income from other sources'.